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The Reach of Antitrust Law

(By William Markham, San Diego Attorney © 2016)

Antitrust law is the law of competition. It must always be carefully considered by competitors that wish to collaborate as well as by any firm that arguably has substantial market power (i.e., the power to charge prices substantially above its marginal costs without losing many sales to rivals). Businesses that have been harmed by exclusionary or predatory business practices can obtain significant damages and redress under the antitrust laws, including injunctive relief that allows them to compete fairly on the merits without facing unfair hindrance from rivals that seek to suffocate competition rather than excel at it. Harmed consumers can also obtain substantial relief, typically in the form of significant damages. This very short article offers a basic primer on the essentials of antitrust law. For a much more thorough review of the topic, please see my article entitled “An Overview of Antitrust Law.”

The federal antitrust laws are codified at 15 U.S.C. § 1 et seq. and have been interpreted and explained at great length in numerous court decisions rendered by the federal courts. Nearly every state also has its own state antitrust laws, which are set forth in state statutes and interpreted and enforced by both state and federal courts.

The federal antitrust laws impose both criminal and civil penalties against offenders and can be enforced by two different federal agencies, state prosecutors, and private litigants.

The two federal agencies are the Federal Trade Commission (the “FTC”) and the Antitrust Division of the Department of Justice (“DOJ”). The FTC is authorized to bring administrative charges and in some cases to bring suit in federal court to seek injunctive relief. It wields broad authority to enforce the federal antitrust laws and other acts of unfair competition under Section 5 of the Federal Trade Commission Act, which is codified at 15 U.S.C. § 45. The DOJ is authorized to bring both criminal and civil cases in federal court, and it often collaborates with regional Offices of the United States Attorney and state prosecutors.

State prosecutors (called “Attorneys General”) are authorized by statute and under the doctrine of parens patriae to bring civil antitrust claims in federal court law on behalf of affected consumers in their respective states; they also enforce their own state antitrust statutes, which nearly every state has enacted.

Lastly, affected private litigants that have suffered “antitrust injury” because of an antitrust violation can bring civil cases in federal court and upon prevailing are entitled to recover treble damages, attorneys’ fees and other costs, while antitrust defendants in these cases cannot recover their attorneys’ fees even if they prevail, unless the filing was manifestly frivolous, in which case they might be able to obtain sanctions and other redress.

An antitrust offender can find itself pursued simultaneously for criminal violations and civil violations and can be sued at the same time by federal and/or state prosecutors and also by private litigants. Private litigants can also bring proposed class-actions, seeking class-wide remedies.

What Are the Antitrust Laws?

Broadly speaking, the antitrust laws outlaw unlawful restraints of trade, acts of anticompetitive monopolization, and certain kinds of price-discrimination, and they also regulate mergers, interlocking directorships, and certain other transactions between companies. The distinguishing characteristic of business practices that are condemned as unlawful restraints of trade or acts of unlawful monopolization is that the offenders typically employ the practices in question not in order to improve their own goods or services, but rather to disrupt their rivals’ ability to compete against them and/or to prevent ordinary competitive interplay among rival firms that would otherwise vie against one another to make sales to customers.

Unlawful Restraints of Trade

Section 1 of the Sherman Act (15 U.S.C. § 1) condemns certain kinds of restraints of trade. A restraint of trade is a contract or other commercial practice that is implemented by two or more independent legal persons (typically, two or more companies). Three commercial practices are particularly disfavored and routinely condemned as per se violations of Section 1 of the Sherman Act: (1) horizontal price-fixing; (2) bid-rigging; and (3) horizontal market-allocation. Two other commercial practices are condemned as violations of Section 1 under modified per se rules: (1) horizontal group boycotts; and (2) tying arrangements when the seller has market power in the tying product (these arrangements can also be condemned under Section 3 of the Clayton Act, which however governs only goods, but not services, and which when applicable has a somewhat lower threshold, since it condemns threats to competition, not merely actual harm to it). Certain other practices are sometimes condemned as unlawful restraints of trade under Section 1 after a limited review conducted on the basis of a “quick-look” analysis. All other commercial practices can be condemned as unlawful restraints of trade under Section 1 only upon a finding that on balance they are anticompetitive in effect — a finding that usually requires a fact-intensive review of competitive processes in properly defined markets, although in some exceptional cases it is possible to show harm to competition by establishing that the offender has imposed supracompetitive pricing without defining the markets in which it operates.

The Monopolization Offenses

The monopolization offenses are governed by Section 2 of the Sherman Act (15 U.S.C. § 2). To prove actual monopolization, a private plaintiff must propose a “relevant market,” prove that the defendant has acquired or preserved “monopoly power” in this market, prove further that the defendant has done so by means of anticompetitive conduct, and show that one anticompetitive consequence has been proximate harm to the plaintiff. To prove attempted monopolization, a private plaintiff must define the relevant market, show that the defendant harbors a “specific intent” to acquire monopoly power in this market by means of anticompetitive practices, and show that on current trends there exists a dangerous probability that it will succeed unless it is stopped by an antitrust intervention (i.e., an injunction and possibly an award of treble damages). To prove conspiracy to monopolize, a private plaintiff must define the market and show that two or more legal persons have conspired to confer monopoly power in this market on one legal person (typically, one of the co-conspirators, but sometimes another company, such as a brand-new company). For the monopolization offenses, it is always necessary to show that the defendant has employed anticompetitive practices to accomplish its purposes.This means demonstrating that the defendant set out not to improve its own offerings, but instead sought to disrupt the operations of its rivals so that it could corner its markets.

Market Definition

As used in antitrust law, the concept of “harm to competition” refers to practices that permit one or more of the offenders to charge supracompetitive prices (which inevitably restrict output) or otherwise to restrict overall market output (e.g., limited production, less accommodating service, the suppression of innovations, etc.). In most cases, it is not possible to determine whether the practices at issue have caused harm to competitive processes until the market in which these practices are employed is “defined.” Defining the “relevant market” in an antitrust case is often a critical, hotly disputed issue.

Anticompetitive Mergers in Concentrated Markets; Interlocking Directorships

Antitrust law also can be invoked to challenge mergers that are likely to result in overly concentrated markets. In such markets, it usually becomes much easier for the few sellers to coordinate their pricing. These matters are governed by Section 7 of the Clayton Act and are frequently assessed on the basis of the criteria that are fully explained in the DOJ’s various merger guidelines. In addition, the Hart-Scott-Rodino Act imposes reporting requirements on the proponents of proposed mergers that fall within specified categories (the reporting obligation arises when the merger is sufficiently large). Antitrust laws also can be used to challenge certain “interlocking directorships.”

Unlawful Price Discrimination

Antitrust law also reaches certain kinds of price discrimination. These matters are governed by the Robinson-Patman Act, which is codified at (15 U.S.C. §§ 12 et seq.).

Domestic vs. Foreign Commerce

Lastly, the antitrust laws are intended to govern only business practices that have a substantial impact on the commerce of the United States – domestic commerce as well as the import and export trades of the United States, but not conduct that is undertaken abroad and that does not have a substantial impact on the commerce of the United States. This topic has received enormous attention in recent years and concerns the many complicated issues that arise when the practices in question are international in character or were committed abroad but arguably have had repercussions in the United States.

By William Markham, San Diego Attorney © 2016

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